Project Q has an initial cost of $211,415 and projected cash flows of $121,300 in Year 1 and $176,300 in Year 2.Project R has an initial cost of $415,000 and projected cash flows of $187,500 in Year 1 and $236,600 in Year 2.The discount rate is 8.5 percent and the projects are independent.Which project(s),if either,should be accepted based on its profitability index value?
A)Accept both Project Q and R
B)Reject both Project Q and R
C)Accept Project Q and reject Project R
D)Accept Project R and reject Project Q
E)Accept either Project R or Project Q,but not both

Question

Quizplus · Accepted Answer

PI_Q = ($121,300/1.085 + $176,300/1.085²)/$211,415 = 1.24;AcceptPI_R = ($187,500/1.085 + $236,600/1.085²)/$415,000 = .90;Reject

Project Q Has an Initial Cost of $211,415 and Projected